By on November 13, 2009

Messiah or Madman?

Not long after Fortune’s long time auto writer Alex Taylor III finished his apology to Ford he went on to write a love letter to Sergio Marchionne. Taylor starts with parallels to Ghosn’s myth making success at Nissan, then ups the ante: “The other day in Auburn Hills, Mich., Fiat CEO Sergio Marchionne took a page out of the Ghosn playbook — and then improved upon it.” The impetus for Taylor’s piece was the legendary Power Point Rumble in the Detroit Jungle TTAC’s Edward Niedermeyer reported on with, um, slightly less enthusiasm last week .

Unlike our man Eddie, AutoNation’s CEO Mike Jackson joined Taylor in going all in for the Fiat-Chrysler. The voluble Jackson went on CNBC on the 5th  and effused about the plans he saw presented on the Rumble. “They will make it. This will work. I walked out of that meeting and put in a call to my headquarters in Ft. Lauderdale yesterday and said: ‘Ok, the green light, we’re in.’” Earlier in the broadcast Jackson had said he had to make a decision whether to sell of his remaining Chrysler stores, stand pat, or buy more. Sergio got the answer he needed from the country’s largest dealer group. Those shaky independent Chrysler dealers calling Sergio for help are likely to get Mike Jackson’s phone number in response.

Is Marchionne really that good, or is Chrysler simply hopeless? Have the likes of Jackson and Taylor have been duped? I think it safe to say a poll of TTAC regulars would tilt heavily towards the hopeless conclusion. That is the obvious answer, but sometimes what everyone knows isn’t worth knowing. Other times, the crowd is right.

Since the big piece of the Marchionne image is Fiat’s turn-around, let’s look more closely at how Fiat is doing. The Fiat Group’s most recent quarterly report [PDF] gives plenty of information about Chrysler’s new overlords. Total revenue for the quarter was down to just over €12,049 M, slightly over half from automotive sales and the rest from agricultural, commercial and components businesses. Fiat booked a small €128 M profit before taxes on those sales. Autos were down a few percent, but the rest of the company was off over 29%. Fiat’s automotive market share in Europe inched up to 8.3% in the third quarter, and the company’s domination of Brazil continued with nearly 25% market share. Both European and Brazilian results were boosted by governmental vehicle scraping incentives. What happens next as those incentives wind down is a big concern. Even so, Fiat has undeniably gone from basket case to viable competitor in the few short years since Marchionne took GM’s $2B divorce settlement and used it to fix up GM’s “ex”.

Chrysler, meanwhile, does have some significant good things going for. The Hemi V-8 engine is good, still popular where appropriate and is built in a state of the art, low cost Mexican factory. Chrysler also now owns 100% of the Harbor Productivity award winning, ultra-flexible Global Engine Manufacturing Alliance plant in Dundee, Michigan; and has a third new state of the art engine plant about to start turning out the all-new Pentastar V-6 engines. Back when Fiat was still in bed with GM, the two companies combined their European powertrain development and manufacturing efforts. Consequently, most of Fiat’s current gasoline engines are still products of that venture, but no longer share future development costs or procurement with GM. Combining forces with Chrysler isn’t just about getting ultra-small engine technology to Chrysler, but also about replacing the defunct GM powertrain joint-venture for Fiat’s strong European and South American businesses going forward.

Other Chrysler strengths are the still strong Jeep brand and a significant share of the US’ still highly profitable pickup truck market. Just ask Nissan and Toyota how expensive and difficult it is to crack that nut! (The Titan’s failure is one of Ghosn’s biggest misfires.) The Ram trucks may be number three, but they are the only player taking anything away from Ford and GM on that turf. But against those strengths we have the deadweight of Chrysler’s anemic car, crossover and minivan lineup. How can it be that Hyundai makes a higher rated minivan than Chrysler?

Chrysler’s biggest advantage right now is new management pushing hard to do things better and differently. (Meanwhile, GM still has the same old people doing the same old things.) The odds are still long, and I’m not buying any Fiat stock. But then again, as a US taxpayer I already have a little skin in the game. I started the process of writing this editorial planning to rib Alex Taylor III mercilessly for his man crush on Sergio. But, having done more research on the man and the plan I just can’t bring myself to do it. I’m not ready to predict success, but if anyone can pull what is left of Chrysler back from the abyss, Marchionne looks to be the man for the job. If nothing else, who but Sergio can put on a rumpled sweater and quote Machiavelli, Bill Clinton and Bobby McFerrin to a room full of jaded reporters, dealers and financial analysts? Whichever way it goes, Harvard Business School case studies chew this one over for years to come.

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25 Comments on “Editorial: Sergio Marchionne: Savior or False Prophet?...”


  • avatar
    jamie1

    I think it safe to say a pole of TTAC regulars would tilt heavily towards the hopeless conclusion.
    Does TTAC have a lot of Polish readers or did you mean ‘poll’? I am sure you are huge in Poland!

  • avatar
    srogers

    John;
    They’re going to make you turn in your TTAC union card if you can’t be any more negative than that!

  • avatar
    Lichtronamo

    Fiat’s moves thus far give them flexibility.  Flexibility to bring Alfa and Fiat branded cars here to replace Chrysler and Dodge badged cars together with Ram trucks and Jeep SUVs.  If that doesn’t work, Fiat is free to abandon NA again selling Ram and Jeep, which are the only parts of Chrysler really worth anything.

  • avatar
    FromBrazil

    Back when Fiat was still in bed with GM, the two companies combined their European powertrain development and manufacturing efforts. Consequently, most of Fiat’s current gasoline engines are still products of that venture, but no longer share future development costs or procurement with GM. Combining forces with Chrysler isn’t just about getting ultra-small engine technology to Chrysler, but also about replacing the defunct GM powertrain joint-venture for Fiat’s strong European and South American businesses going forward.

    I’d like to bring to your notice that Fiat has done many other things to adress this issue. For example, it bought, in Brazil, the Tritec engine factory. Originally (if I remember correctly) a joint venture between Cheysler and BMW it was set up, in Brazil, to give BMW and Mini products a worldwide 1.6 and later extend the offer of this engine to Chrysler world products.

    But then Daimler bought Cheysler and neither they nor BMW were keen on working together. So BMW went on to partner w/Peugeot and make the 2nd generation’s Mini 1.6 engine in Europe, as well as offer it on a host of Peugeot and BMW Europe products.

    Fuiat has been busy updating and improving this engine (including their much acclaimed MultiAir technology) and they will soon start outfitting the Brazilian car market w/ wngines from this source. In Brazil they build their own 1.0, 1.4 and 1.9 engines, as well as import a 1.4 turbo from Italy and buy GM”s prehistoric 1.8. As rumor would have it, they get such a steal on GM’s engine (yes, as part of their former agreement w/GM) that it’s actually cheaper to buy that engine than produce even their lowly 1.0 FIRE engine. So it made sense (at least financially since the 1.8 is a dog of an engine) to ride out the contract until the end.

    So, no, Fiat doesn’t depend on 3rd parties for their engine development, but being real survivors, they do and will partner w/ anyone in order to cut costs.

    As for Mr Marchionne being a prophet or not, only time will tell.

  • avatar
    Paul Niedermeyer

    John, good editorial, and I largely agree.
    A couple of points: my memory tells me that the only engine Fiat got from the GM powertrain jv was the V6. The Fiat four cylinders are all Fiat designs. GM (like Chrysler) wanted Fiat’s small engine tech, especially their small diesels, which they were heavily dependent on. GM had to really hustly to develop replacements for them.
    Fiat’s position in Brazil cannot be overstated. I have read over the past two years or so that Fiat’s European auto ops have been in the red (maybe not this past six months because of the junker schemes), and that the Brazilian ops are madly profitable, due to a limited number of players able to price their cars inordinately high. How long will that party go on? I know that the Asians are building factories there.

    Edit: I see from the previous post that Fiat is still using the GM 1.8; my bad.

  • avatar
    mtymsi

    As stated only time will tell if Marchionne can succeed but I like the chances a whole hell of  a lot better than I did with Nardelli.

  • avatar
    rpiotr01

    “I’m not ready to predict success, but if anyone can pull what is left of Chrysler back from the abyss, Marchionne looks to be the man for the job.”
     
    That’s pretty much my take. Just have to wait and see what happens.

  • avatar
    tparkit

    The Chrysler-Fiat deal wasn’t about engine plants per se. Fiat went partners with the UAW, and with Washington, the UAW’s political partner. Fiat didn’t have to put up a dime up front. With possible upsides (including tapping the US taxpayer), and limited downside, Fiat’s venture can best be described as a calculated wager.

    Fiat has no skin in the game, and that should make potential buyers of the stock very nervous. Worse, Chrysler offers Fiat the potential for a stip-and-flip exit if Chrysler fails.

    What this means is, Fiat doesn’t necessarily expect Chrysler to succeed. Fiat could even <i>know</i> Chrysler can’t succeed, and have done the deal anyway. All that’s necessary is for Fiat to come out of the wreckage ahead of where it went in. For an "investor" with zero investment, that merely requires knowing at all times where the exits are.

    • 0 avatar
      John Horner

      I agree, Fiat is putting in sweat equity, not cash. Having made some money myself by trading my sweat equity for stock options back when start-up semiconductor companies were all the rage I have nothing against sweat equity. You could say that every engineer like myself who put their time and energy into those companies didn’t have financial skin in the game. But then again, what is actually more valuable than our limited time on this Earth? Cash pales by comparison in my view.
      I didn’t mean to imply that Fiat was just in it for the engines, but rather to point out that bad as things are, Chrysler is not completely devoid of potentially useful assets. Fiat’s interest is indeed a calculated wager, and there is nothing wrong with that.

  • avatar
    FromBrazil

    @Mr. Paul Niedermeyer.

    The market has been wide open since the 90s. That is, if you choose to build a factory here and produce locally. The average tax on imported vehicles is a whopping 35%, so no, you won’t get a foothold in this market without building here.

    That being said, Brazil’s market was a closed one (imports were banned) until Fiat came in in the late 70s.  Previously, VW, GM and Ford shared the market. Fiat has been an underdog in Brazil and extremely aggressive and innovative, not to mention fast. In 20 short years it went from the univited ugly redheaded bastard child, to market leader (for you to have an idea Mr. Niedermeyer, when Fiat innaugurated their factory in the state of Minas Gerais, most São Paulo newspapares boycotted the event since they believed that their region had a “God-given” prerrogative to receive any auto-related investments).

    In come the 90s and new liberalizing policies. Imports were permited, albeit w/ punitive taxation, and first the French, then the Japanese opened factories (not to mention Mercedes, but they just assemble, for the most part, CKD units that are not considered local production and so must be exported). Now Hyundai is opening a factory where they’ll buid previous generation Tucsons w/ stamping tools and all being imported from Korea to make room for the new x-whatever (and good luck to them!).

    However, this market is a tough nut to crack. Only Fiat has done it. Suzuki came and went. Mazda ditto. Not to mention Lada (among some others). Of the newcomers Renault has been the most succesful, establishing a market share that fluctuates around 5% (but seems to have stagnated there). Peugeot and Citröen both have around 3% (giving PSA 6%). Honda has now climbed to 4% and Toyota barely reaches 3%. Hyundai (plus Kia) have for the 1st time last month cracked 2%. All other brands, including Mitsubishi, which does some local assembly, and BMW, Audi, M-B, Kia, Land Rover, Volvo, which just import, barely reach 1%.

    So the picture for the moment looks like this:

    Fiat 23%-25% and growing in absolute numbers, though losing some market share (new products coming soon though, so problem probably addressed)

    Volkswagen 21%-23% Growing the most and gaining market share, actually putting some pressure on Fiat due to strength of a series of new products coming to market. After novelty wears off and Fiat counter attacks should settle back to the 20%-21% share.

    GM (Chevrolet) 19%-20% and falling, in absolute numbers and terms of share. Poorly received new products. Prediction: will grow a little for 6 months then fall quickly to 18%.

    Ford 9%-12%. No new products in sight. Depends heavily on promotion. Prices go down, sales reach 12% of market. Try to sell MSRP, see market share taper off to 9%.

    Renault 5%. A while back growing, now stagnated.

    Honda 4%. And growing, though might have shot itself in the foot w/ the gross overpricing of the new Fit and City (Fit derived sedan) both of which seem to be eating into Civic’s market share (erstwhile leader in its segment now trailing Corolla for reasons mentioned).

    Peugeot 3%. And falling no new launches in sight. Citroen also around 3% and the same as Peugeot. Toyota 3% but planning major growth initiative with probable launch in 2010 or 2011 of Yaris sized and based product. Interesting to see how this product will slug it out w/ VW’s new Gol and Polo, Fiat’s new Uno and Palio, and GM and Ford offerings, which though lag behind VW and Fiat, are still top 10 sellers.

    Hyundai. Topping 2% and growing w/ aggressive pricing and warranty programs, though will probably will stay a niche player unless they start building a local subcompact car.

    All other stay under 1% and have been at this level since the market opened.

    Hope to have shed a light.

  • avatar
    FromBrazil

    Wow! Thanks for that excellent picture of the Brazilian market. You should be TTAC’s Brazil correspondent.
    Paul

    I take that complement very proudly thank you very much. After all, these are the words of our very own Paul Niedermeyer. Author of Autobiography, Cubside Clssics among others. My favorite sections of TTAC.

    Who knows Mr. Niedermeyer, I just might try it!

    BTW, have just read the your take on the PAO. Awesome as always. In some ways though driving a Fiat Palio as my daily car, I feel I’m in the “kei” class everyday. 1.0 L engine w/ a heart-stopping 66cv! Weighing in at around 1 metric ton…As a wise man once said, “it’s more fun to drive a slow car fast, than a fast car slow!”

    Thanks for the kind words Mr. Niedermeyer!

  • avatar
    Pch101

    I’m not ready to predict success, but if anyone can pull what is left of Chrysler back from the abyss, Marchionne looks to be the man for the job.

    Agree 100%.  Marchionne earned his turnaround stripes, but that doesn’t guarantee success, either.   This was one of the best (and few) options available to the automotive task force.

    Fiat looked dead in the water when he got involved in it, and he managed to turn that around on the basis of a vehicle-based turnaround.   That could also work for Chrysler, as it is small enough that a hit vehicle or two could be enough to revive and save it.  But he needs time and money to create that hit, and that could prove to be a challenge.

  • avatar
    Mirko Reinhardt

    @Paul
    A couple of points: my memory tells me that the only engine Fiat got from the GM powertrain jv was the V6. The Fiat four cylinders are all Fiat designs. GM (like Chrysler) wanted Fiat’s small engine tech, especially their small diesels, which they were heavily dependent on. GM had to really hustly to develop replacements for them.

    All current Opel diesels are Fiat designs, except the Antara’s Daewoo lump and the Pre-Fiat Iveco 1.7. They have not developed any replacements for the Fiat engines at all.
    The new Astra uses Fiat diesels. Won’t change anytime soon.

  • avatar
    Mirko Reinhardt

    Isuzu, not Iveco. Edit doesn’t work on iPhone…

  • avatar
    guyincognito

    It is easy as a resident cynic at TTAC to dismiss Marchionne’s chance out of hand, so it is nice to hear a little about the other side from a trusted source. And,  admittedly, I have not followed Marchionne’s career, or his accomplishments at FIAT, so I can’t comment on his abilities.  I do think that a great leader could achieve something as seemingly impossible as turning around Chrysler. Still, he’d better have either more money or a different plan than we’ve seen come out in the last couple of weeks…

  • avatar
    Jerry Sutherland

    Marchionne has a decent track record and it looks like some of the pieces in the puzzle are there.
    The best thing they can do is win the quality battle-that’s “job number one” to coin a phrase.
    Fiat has the small cars,Chrysler has the power trains,Jeeps,trucks and minivans and Marchionne is the QB with a record of TD passes-it could work.

  • avatar
    Gardiner Westbound

    Marchionne is neither savior nor prophet. He is a very smart businessman. Financed by billions of foolish U.S. and Canadian taxpayer dollars he acquired a moribund automaker with some very good assets and no liabilities. Fiat now has a free North American distribution channel and an opportunity to make billions. If it goes south Marchionne has no skin in the game.

    • 0 avatar
      geozinger

      Agreed that Marchionne is a shrewd businessman. I have a question, why did Frank Stronach (Magna) pursue Opel when he could have had his own car company (Chrysler) for probably the same deal as Marchionne? 
      Maybe he could have found a market in Eastern Europe for all of the leftover Sebrings no one buys here. He could have his own North American operations and probably still kept his other clients here in the states (as how much choice do we really have here, with all of the other suppliers folding up?) Kind of like having your cake and eating it, too.
      An opportunity missed… And now, no Opel.

  • avatar
    blowfish

    For an “investor” with zero investment, that merely requires knowing at all times where the exits are.
     
    Thats very right, when u need no down payment to move into a house would u work very hard to save her incase u lose your job.
    To Uncle Sam Sergio is the only workable suitor to marry her jilted daughter. After Benz & Cerealbus repeated pillage & plunder her.
    We all want Sergio to make a go of this.  Except Uncle Sam’s big 3 did built a lot of obstacles to block European cars to come this way, now is tasting her own medicine, the double edge sword is cutting her own skins. Rendered much harder for GM to bring Opels, Ford to bring Euro Fords & Cryslur  to bring FIATs here.
     


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